Economy of South Korea

The economy of South Korea is a highly developed mixed economy. By nominal GDP, the economy was worth â‚©2.24 quadrillion (US$1.72 trillion). It has the 4th largest economy in Asia and the 13th largest in the world. South Korea is notable for its rapid economic development from an underdeveloped nation to a developed, high-income country in a few generations. This economic growth has been described as the Miracle on the Han River, which has allowed it to join the OECD and the G20. It is included in the group of Next Eleven countries as having the potential to play a dominant role in the global economy by the middle of the 21st century. South Korea's education system and the establishment of a motivated and educated populace were largely responsible for spurring the country's high technology boom and economic development. South Korea began to adapt an export-oriented economic strategy to fuel its economy. In 2022, South Korea was the ninth largest exporter and ninth largest importer in the world. The Bank of Korea and the Korea Development Institute periodically release major economic indicators and economic trends of the economy of South Korea.

Top Sectors in South Korea

Electronics in South Korea

Electronics is one of South Korea's main industries. During the 1980s through the 2000s, South Korean companies such as Samsung, LG, and SK led South Korea's growth. In 2017, 17.1% of South Korea's exports were semiconductors produced by Samsung Electronics and SK Hynix. Samsung and LG are also major producers in electronic devices such as televisions, smartphones, display, and computers.

Mining in South Korea

Most of the mineral deposits in the Korean Peninsula are located in North Korea, with the South only possessing an abundance of tungsten and graphite. Coal, iron ore, and molybdenum are found in South Korea, but not in large quantities and mining operations are on a small scale. In 2019, South Korea was the 3rd largest world producer of bismuth, the 4th largest world producer of rhenium, and the 10th largest world producer of sulfur.

Armaments in South Korea

South Korea also exports various core components of other countries' advanced military hardware. Those hardware include modern aircraft such as F-15K fighters and AH-64 attack helicopters which will be used by Singapore, whose airframes will be built by Korea Aerospace Industries in a joint-production deal with Boeing. In other major outsourcing and joint-production deals, South Korea has jointly produced the S-300 air defence system of Russia via Samsung Group, and will facilitate the sales of Mistral class amphibious assault ships to Russia that will be produced by STX Corporation.

Tourism in South Korea

In 2012, 11.1 million foreign tourists visited South Korea, making it one of the most visited countries in the world, up from 8.5 million in 2010. Many tourists from all around Asia visit South Korea which has been due to the rise of the Korean Wave (Hallyu). Seoul is the principal tourist destination for visitors; popular tourist destinations outside of Seoul include Seorak san national park, the historic city of Gyeongju, and semi-tropical Jeju Island. In 2014 South Korea hosted the League of Legends season 4 championship and then, in 2018, the season 8 championship.

South Korea - Key Economic Indicators

Exports & Imports

South Korea is a major exporting nation, ranking #7 globally. Electronics, automobiles, ships, chemicals, and information technology products dominate its exports. China and the United States are its top trading partners. Imports primarily consist of raw materials, energy sources, and machinery. While exports boomed in 2022, high global energy prices led to a trade deficit, the largest ever for South Korea.

Balance of Trade

Traditionally, South Korea enjoys a positive trade balance, meaning exports exceed imports. However, in 2022, surging energy import costs tipped the scales towards a deficit. The government is taking steps to diversify import sources and boost domestic production to achieve a more balanced trade picture.

Infrastructure Development

South Korea boasts a well-developed infrastructure network. The country has over 11,000 kilometers of national highways and a comprehensive network of expressways. South Korea is continuously investing in infrastructure projects, including high-speed rail, bridges, and smart city initiatives.

Fiscal Policy

South Korea employs a progressive fiscal policy. The government uses a combination of spending and taxation to influence economic activity. Government spending focuses on social programs, infrastructure development, and technological innovation. Tax revenue is the primary source of government income, with a progressive income tax structure ensuring higher earners contribute a larger share.

Monetary Policy

The Bank of Korea is the central bank responsible for monetary policy. It primarily uses interest rate adjustments to control inflation and stimulate economic growth. In periods of high inflation, the Bank of Korea raises interest rates to curb spending and borrowing. Conversely, interest rates are lowered to encourage borrowing and investment during economic slowdowns.

Trade Agreements

South Korea actively participates in free trade agreements (FTAs) to expand its export markets and access raw materials at lower costs. Major FTAs include agreements with the United States, China, the European Union, and ASEAN countries. These agreements eliminate or reduce tariffs and trade barriers, promoting international trade.

Environmental Regulations

South Korea has implemented stricter environmental regulations in recent years to address air and water pollution concerns. The government enforces regulations on emissions standards for vehicles and industries. Investments in renewable energy and energy efficiency initiatives are also part of South Korea's environmental strategy.

Tax System in South Korea

Capital Gains Tax: South Korea has a capital gains tax on profits from stock sales and other investments. The rate varies depending on the holding period and asset type. Short-term gains (less than one year) are taxed as ordinary income, while long-term gains (over one year) have a lower tax rate.
Corporate Tax Rate: South Korea has a progressive corporate tax rate system. The rate starts at 9% for small businesses and gradually increases to 24% for corporations with very high profits.
Sales Tax: South Korea has a Value Added Tax (VAT) system. The standard VAT rate is 10%, but some essential goods and services are exempt or have a reduced rate.
Property Tax: South Korea has a property tax levied on the ownership of land and buildings. The tax rate is based on the appraised value of the property and can vary depending on location and type of property.
Payroll Tax: South Korea has a social security contribution system funded partially by payroll taxes. Both employers and employees contribute a percentage of wages to this system, which finances social security benefits like pensions and healthcare.
Tax Deductions and Credits: South Korea offers various tax deductions and credits to incentivize specific behaviors or support certain demographics. Examples include deductions for medical expenses, education costs, and contributions to retirement savings plans. Tax breaks are also available for businesses investing in research and development or starting operations in special economic zones.
Tax Compliance: South Korea has a relatively efficient tax collection system, with a high tax compliance rate. The government utilizes electronic filing systems and strict enforcement measures to ensure tax collection.
Tax Burden: South Korea's overall tax burden is considered moderate compared to other developed economies. However, the burden can vary depending on income level, business size, and property ownership. The progressive tax structure ensures higher earners contribute a larger share of total tax revenue.

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